Reporter's Notebook: Taiwan show masks deep downturn

TAIPEI -- You wouldn't know the global PC industry is in a slump by looking at the Computex 2001 computer show here.

TAIPEI -- You wouldn't know the global PC industry is in a slump by looking at the Computex 2001 computer show here.

The exhibit halls are jammed, with attendance near record levels. Intel Corp.'s touted upcoming products -- Brookdale chipset, Tualatin and Socket 478 Pentium 4 processors, not even officially introduced by the MPU giant -- are prolifically displayed on the floors here.

Motherboard vendors are quietly giving key customers a backroom peek at sample chips they have of Intel's new 0.13-micron design rule Pentium 4 Northwood processor and Advanced Micro Devices'1.6-GHz Athlon and 1.1-GHz Duron processors, all coming late this year.

But Computex is a safe harbor in a stormy PC landscape. PC Taiwan Inc. itself is feeling the market agony mightily. The government-backed China External Trade Development Council reported that PC-related product shipments showed a negative first quarter for the first time in 20 years, with Q1 revenues dropping 10% over the similar period a year ago.

Notebooks computers, where Taiwan is the acknowledged world leader, dropped even more, showing an 18% Q1 year-to-year decline.

Only China across the strait has kept PC sales momentum rolling. But some Taiwan exporters have detected a slight sales hiccup even on the mainland in the last several weeks.

Revenues took a hit from the plunging global prices on all parts of the PC food chain -- from DRAMs to LCD displays to assembled boxes. Worse yet, in many areas unit shipments were also down in the quarter. Notebook unit shipments slid 7%.

A favorite dinner table guessing game is how soon Happy Days will be here again for PCs. But the Computex crystal ball is no better than soothsayers elsewhere in the world. It's wait and see here as well.

What you don't hear much in conversations is how the PC food chain can blame itself for many of its current troubles. Overly-enthusiastic investors last year rushed to expand production in everything from chips to new contract assembly plants. That new capacity is starting to come on line right in the midst of the market slump, exacerbating the global oversupply.

Take foundries for an example. Many Asian neighbors rushed to join Taiwan in building new fabs when business was booming last year. Everyone is now facing a a market where most foundries are now running at less than 50% of capacity. It is going to take a business upturn later this year as steep as the early 2001 drop off in order to work all the new foundry capacity into the system.

There can be a ripple effect. Foundries, like any fab, must keep pumping chips out the door to help pay for huge depreciation and sunk costs in building a billion dollar plant. When customer orders nose-dive, many foundries may turn to making commodity chips, such as DRAMs, dumping them on spot markets, just to get some extra revenue to offset the sales loss in their core business.

Danny Lam, president of Communications and Computer Report in New York, suspects some extra DRAM supply from foundries may be another culprit in the global memory market crash.

One silver lining in the PC storm clouds over Taiwan is new business coming to the island from foreign companies who can no longer make products cost-effectively in their own homelands.

But in turn, the Taiwan industry is increasingly being forced to outsource more of its own production to lower cost countries, predominately China. It isn't clear who will end up odd-company-out in this game of musical chairs outsourcing.

In the meantime PC despondants can leave some of their cares at the doors of the Computex gala. It's Prozac for the industry while it waits for the market to come out of the dumps.